Last week I did an interview about HVCC on FBN with Neil Cavuto. I’ve been interviewed by each of the anchors Brian Sullivan and Dagen McDowell on prior occasions. Both very nice people. Always fun to do these.

An interesting, and in my view, likely housing double dip may be seen in the Case Shiller Index caused by performance differences in the bottom and and top half the the market.

Here’s the 20-city breakdown:

While the Case Shiller Index isn’t a tool to price specific property or markets, it shows macro trends and does a lot to set consumer housing market psychology.

Here’s Shiller’s interview on Fox Business today (I was interviewed by the same anchors about 30 minutes later on the issue of HVCC) talking about his new trading tool for housing. Mike at Altos Research does a brilliant job explaining how the new ETF works.

In the current issue of the New Yorker, there’s a terrific article by James Surowiecki called Caveat Mortgagor who discusses the potential legislation to create a consumer protection agency for financial products comparing it to the birth of the FDA.

Bankers and Wall Street won;t like it because it hampers their ability to be innovative. Of course some innovation got us where we are here today. However, innovation is not bad per se and I’m realistic in that such regulation will not eliminate financial collapse, but rather, I see it as a way to reduce the odds of such a collapse.

I do worry that consumers will develop a false sense of security with investing since many can’t figure out a simple interest rate.

In finance, third parties—like debt-management services and mortgage brokers—are often conflicted at best and corrupt at worst. And buying a house is far more complex, and confusing, than picking out a refrigerator. This doesn’t mean that a consumer-protection agency could have averted the current crisis—given the widespread conviction that house prices would rise forever, disaster was probably inevitable—but it might have saved some from the financial equivalent of Elixir Sulfanilamide.

More important, negative-amortization loans, prepayment-penalty mortgages, and option ARMs all made it easier for people with low incomes and poor credit to buy houses, and for people to buy bigger houses than they otherwise could have. Serious regulation will mean that fewer people can buy homes.

He concludes with “a simple lesson: if you don’t understand the deal you’re making, don’t make it.”

Alyssa Katz, author of “Our Lot: How Real Estate Came to Own Us” is interviewed in Salon.com today in a piece called Who’s to blame for the housing crash? …good intentions and mass delusion that led to the real estate boom.

Here’s the first two questions of the interview:

Isn’t homeownership actually good for you? I thought it was the panacea for almost all social ills, it drove the crime rate down, educational achievement up, and so on.

Yes, well, homeownership is only as good as the amount of home you actually own, and I think the big problem in the last generation or so is that Americans have turned to more and more and more debt to reach for the American dream…

Does this mean that we shouldn’t actively encourage homeownership, using government money or government policy?

I think there’s nothing wrong with using government money, policy, pressure, all those tools to make homeownership more of a possibility than it would otherwise be in the marketplace, simply because the market left to its own devices discriminates aggressively. It rewards people who already have wealth, who have already had a leg up economically, and it’s great to give other people the opportunity as well.

The problem is that homeownership is the only housing policy that this country has ever shown any commitment to. Renters are treated miserably.

I was recently speaking to a real estate agent who was quite upset and was asking me for advice on on a particular situation.

You can’t make this up.

I never saw the appraisal report and don’t know if it was right or wrong. It’s the process that amazes me. The agent told me:

I’m refinancing with a bank where I already have a mortgage – [Large US Bank Who Took TARP Money].

The appraiser who came to my apt [threw] his hands up in the air and said “how am I supposed to appraise this thing” and indeed he did not as the comps he used were completely not appropriate and he did not look at the info I sent to him PER HIS REQUEST.

To make a long story short, I have escalated this as much as I think I can at [Bank Name Redacted], but I see no results and Monday will be exactly 2 wks since this happened.

The agent just got back to me and told me the bank stood by the appraisal.

Of course, the bank has little to do with the review – that’s because national lenders are centralized, nearly all rely on Appraisal Management Companies and have little or have no local knowlege in housing markets or have relationships with someone who does. The AMC who hired the appraiser for the bank is likely the one who reviews the report. Remember, they are the same firm who felt it was appropriate to use an out of market appraiser, so how reliable will their review be?

The AMC position tends to be: if you are licensed in New York State, you should be qualified to appraise in all counties of the entire state.

A state appraisal license does not equal experience or competence. It’s a revenue opportunity for state governments and it is a very low bar to cross to get a typical state license. Basically a half dozen courses and 2 years experience.

In this case, the out of market appraiser based in Armonk, New York, and was hired by an AMC on behalf of a bank to appraise a duplex co-op penthouse in Manhattan. This is becoming a more common occurrence in appraisal function of the national retail banks, all of whom are using Appraisal Management Companies.

From the appraiser’s reaction in front of the bank customer/borrower reaction, I would guess he’s not familiar with this type of property, nor does he act as a professional while on the inspection. A low bar indeed.

Another large US bank I know uses nearly 300 appraisal firms in Manhattan with appraisers driving as much as 4-5 hours to bang out a bunch of co-op reports in one day. In my nearly 24 years as an appraiser in Manhattan, I am aware of only 4 firms that regularly do Manhattan work.

I don’t think the banks are stupid (I know, I know). I think they see the mortgage universe as short term profit and loss, rather than as long term preservation of capital. It’s a modern cultural thing I suppose.

If that’s not the case, then they don’t see what value appraisers bring to the table (no pun intended). It is going to be much harder for appraisers in the post-credit bubble universe to make a compelling argument for competent services if the market doesn’t seem to need them in the current structure and where most of the competent appraisers were put out to pasture.

Speaking of pastures…although I’m based in New York, I’m thinking of flying out to Montana and banging out a quick appraisal of a 100,000 acre cattle ranch for $175 in 24 hours.

No household would default if the equity shortfall is less than 10% of the value of the house.

17% of households would default, even if they can afford to pay their mortgage, when the equity shortfall reaches 50% of the value of their house.

Anger about bail-outs of banks or carmakers does not weaken the moral barrier to default. But people who live in neighbourhoods where home repossessions are frequent are more likely to welsh on loans. Homeowners who know someone who has defaulted strategically are 82% more likely to say they would do so, too. The likelihood of strategic default rises more quickly once the rate of local home foreclosures reaches a critical level. That hints at a vicious cycle of foreclosures that both depress home prices and weaken the social and economic barriers to further defaults. To break the cycle, policymakers need to address the problem of negative equity, not just unaffordable interest payments.

“Speaking of” carmaker bailouts and being strategic: My wife’s family has a long heritage associated with Detroit and the auto industry. To brush up before their visit this week, I listened to this fantastic discussion about the crazy auto franchise system – closing the dealerships as part of the bailout never made sense to me – now it does. Have a listen.

I spoke with Ellen Harnick, Senior Policy Counsel of the Center for Responsible Lending about the initial testimony being made in Congress on the formation of a Consumer Protection Agency for financial products. Ellen is my first repeat guest, a wealth of information and she has a great way of explaining what is going on. She has offered to check in periodically as consumer policy develops in Washington. Here is some of her previous congressional testimony.

I made another attempt to Skype since Ellen is in North Carolina and I’m in NYC – this time there wasn’t the crazy lag when capturing the audio. Progress in technology is measured in baby steps, my friends.

The pattern difference between new and existing home sales are very different in this recession than those in prior years. The difference can be observed in price trends versus sales trends.

In the US as well as the New York City regional market, existing home sale prices have fallen harder than new home sale prices. At the same time, the number of sales have fallen farther for new home sales than existing home sales.

“Foreclosed homes are the supply that has to be worked off,” said Robert Barbera, the chief economist of ITG, an investment advisory firm. He said the problem had worsened in recent months after the end of the foreclosure moratorium adopted by many lenders while they waited to see what the Obama administration would propose.

Of the 135,000 completed but unsold new homes at the end of May, nearly half had been sitting for a year or more. The median age of such homes was 11.5 months, an unprecedented figure.

It may be that builders will have to cut prices even more to sell some houses — houses that, in retrospect, probably should never have been built at all.

This time its different
Existing home sales have been quicker to adapt to changing market conditons, while new home sales have not. In the current market, developers are hampered by the very lenders than enabled them to build in the first place because of the drastic change in the credit environment. Balance sheet issues with lenders are making them less nimble.

It would seem that developers do not have indefinite staying power for stalled projects.

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About Jonathan Miller

Jonathan Miller is President and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm he co-founded in 1986. He is a state-certified real estate appraiser in New York and Connecticut, performing court testimony as an expert witness in various local, state and federal courts. He holds the Counselors of Real Estate (CRE) and Certified Relocation Professional (CRP) designations. He is an Appraiser “A” Member of the Real Estate Board of New York and a member of Relocation Appraisers and Consultants, Inc.Learn More...

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Phil Crawford of Voice of Appraisal asked me to cover for him while he took a well-earned vacation. While I don’t have his sweet, syrupy smooth radio voice, I can grow on you a little bit if you listen long… Read More